The production of broadcasts and remuneration of rights: a business perspective A presentation by Godfrey McFall, Senior Associate, Oliver & Ohlbaum Associates WIPO Headquarters, May 25 th 2009 An assessment of broadcastings contribution to copyright

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3 Contents Flow of funds in the European broadcasting market The contribution of the five largest European markets A UK case study Summary points

4 Contents Flow of funds in the European broadcasting market The contribution of the five largest European markets A UK case study Summary points

Flow of funds in the European broadcasting market Schematic flow of funds – direct and indirect copyright contribution 5 RIGHTS SALES OTHER ANCILLARY REVENUES ADVERTISERS CONSUMER PAYMENTS SOURCES OF FUNDING CONTENT CREATION ADVERTISING SPEND OTHER REVENUES SUBSCRIPTION FEES LICENCE FEE RADIO & TV BROADCASTING BROADCAST INDUSTRY REVENUE PROGRAMMING SPEND BROADCAST INDUSTRY EXPENDITURE Creation of original IP Talent investment Music creation and rights Arts/photography Acquisitions Live events Others (toys and games) FLOW TO COPYRIGHT HOLDERS TECHNOLOGICAL INVESTMENT Telecommunications Platforms and distribution Digital software Consumer electronics

Flow of funds in the European broadcasting market Sizing the European content industry and flows to copyright industry 6 Source: O&O Trends Total industry worth over 86bn 37.6bn (44%) of total revenues invested into content creation in 06/07 Content spend creates original IP and flows into copyright sectors identified on previous slide LICENCE FEE ADVERTISING OTHER PAY TV BROADCASTER COSTS & PROFITS TV SPEND RADIO SPEND 86.3 European broadcasting flow of funds, 06/07

Flow of funds in the European broadcasting market Programming spend and constituent flows to copyright 7 Source: O&O Trends Total European content creation, 06/07 IN HOUSE EXTERNAL NEWS FILM AND TV ACQUISITIONS SPORTS RIGHTS RADIO SPEND DIRECT IP CREATIONFLOWS TO COPYRIGHT PODCASTS EXCLUSIVE ONLINE CONTENT COMEDY/DRAMA CULTURAL DIVERSITY COLLECTION AGENCIES TALENT NEWS AGENCIES TRADEMARKS MERCHANDISE CONTRIBUTES TO PRODUCTION FINANCE (PRE-SALE OF RIGHTS) TALENT (WRITERS, DIRECTORS) COLLECTION AGENCIES NON-DOMESTIC RADIO/TV MOTION PICTURE ORIGINAL JOURNALISM DOCUMENTARIES CULTURAL DIVERSITY TALENT (WRITERS, CONTRIBUTORS) WIDER PRESS/NEWS AGENCIES PROGRAMME IDEA CREATION (BOTH INDEPENDENT AND IN HOUSE) CULTURALLY DIVERSE RANGE OF PROGRAMMING TOPICS NEW FOOTAGE/FILMING ORIGINAL MUSIC SCORES COLLECTION AGENCIES TALENT ANCILLARY ACTIVITIES ARCHIVE FOOTAGE

Flow of funds in the European broadcasting market Non-subscription funded broadcasters contribution to programming spend 8 Source: O&O Trends In all but two EU territories, non- subscription markets account for greater than 50% of all programming spend In largest markets, non-subscription funded broadcasters represent between 65% and 87% of all content spend Non-subscription funded broadcasters proportion of overall programming spend, 06/07 AVERAGE – 72%

Flow of funds in the European broadcasting market Non-subscription funded broadcasters contribution to original content creation 9 Source: O&O Trends Non-subscription funded broadcasters account for over 75% of all original content investment in all markets In the majority of European countries, publicly funded broadcasters tend to invest more heavily in original content than their commercial counterparts Non-subscription funded broadcasters proportion of overall origination spend, 06/07 COMMERCIALLY FUNDED PUBLICLY FUNDED HIGH RELATIVE PUBLIC INVESTMENT HIGH RELATIVE COMNERCIAL INVESTMENT AVERAGE – 91%

Flow of funds in the European broadcasting market Audiovisual sectors contribution to EU economy 10 *Audiovisual industry includes radio, TV, film and video; **Study includes national data from 15 European Union member states **2008 – indicative values Source: European Commission, Oliver & Ohlbaum Trends Audiovisual sector still remains a critical contributor to the EU economy Indicative values of growth suggest audiovisual sector holding up better than other industries faced with digitisation of media consumption Gross Value Add (GVA) by EU copyright industry sectors as a % of total GDP, 2000 & 2008 estimate**

11 Contents Flow of funds in the European broadcasting market The contribution of the five largest European markets A UK case study Summary points

The contribution of the five largest European markets In terms of revenue 12 Source: O&O Trends Total broadcasting revenue (radio and TV) by country size, 06/07 RADIO NON-PAY TV PAY TV Big Five – 72% of revenues Non-pay – 2/3 of big five revenues

The contribution of the five largest European markets In terms of investment in content 13 Source: O&O Trends Total programming spend by market and broadcaster type, 06/07 PUBLICLY FUNDED COMMERCIALLY FUNDED PAY TV RADIO % PROG SPEND OF NON-SUB FUNDED BROADCASTERS 70% 87% 65% 74% 67% Big Five – ¾ of all programming spend Non-pay – 87% of spend in Germany

The contribution of the five largest European markets In terms of investment in original IP 14 *Radio excluded Source: O&O Trends Total originations spend by country and broadcaster type*, 06/07 PUBLICLY FUNDED COMMERCIALLY FUNDED PAY TV % PROG SPEND OF NON-SUB FUNDED BROADCASTERS 98% 92% 78% 92% 90% Big five - >14bn investment in original IP Non-pay accounts for over 90% of this investment

15 Contents Flow of funds in the European broadcasting market The contribution of the five largest European markets A UK case study Summary points

A UK case study Total TV and radio market revenues Note: CPI CAGR of 3.2%; GDP CAGR of 5.4% Source: O&O Trends, Ofcom, RAB, Zenith, BBC Annual reports Market growth just below GDP growth driven by subscription revenues Burgeoning pay TV market – 55% of homes in 2008 Decline in advertising in real terms Licence fee revenue has grown at around GDP 16 TV & Radio industry revenues (nominal), SUBSCRIPTION REVENUE ADVERTISING REVENUE REVENUE FROM PUBLIC FUNDS Compound Annual Growth Rate (CAGR) %

A UK case study Broadcasting contribution to copyright collection agencies increasing 17 *Note: excluding online revenue Source: PRS for Music, O&O Analysis Growth in the UK broadcasting market has translated into a rise in the total value of collections made by the PRS for music from 2002 to 2008 Broadcasting and online contribution copyright agency grown at CAGR of 10% Broadcasting now single biggest contributor to revenues Performing Rights Society (PRS) for Music revenues by sector, BROADCASTING & ONLINE MECHANICAL BROADCASTING CONTRIBUTION* 24% 25% 26% INTERNATIONAL PUBLIC PERFORMANCE

A UK case study Programming investment in the face of advertising declines 18 *Includes spin off channels; values Source: O&O Trends, Ofcom Despite pressure on commercial terrestrial players, investment in programming has remained steady Real advertising decline of 1.3% while programming spend grew at CAGR of 1.7% Competitive dynamics in UK market have ensured a sustained level of investment in programming Commercial terrestrial programming spend versus revenues (real), CAGR % (1.3) 1.7 ADVERTISING PROGRAMMING SPEND

A UK case study Critical role of terrestrial broadcasters in original content creation 19 *Excludes regional spend; includes terrestrial spin off spend Source: O&O Trends Terrestrial broadcasters play a critical role in investment in original intellectual property and cultural diversity Account for 95% of total spend Thematic programming spend dominated by acquisitions and sports rights so contribution to original content creation relatively small Total originations spend by broadcaster type, 2004 – 2007* PUBLICLY FUNDED COMMERCIALLY FUNDED THEMATIC PAY CHANNELS % PROG SPEND OF TERRESTRIAL BROADCASTERS 96% 95%

20 Contents Flow of funds in the European broadcasting market The contribution of the five largest European markets A UK case study Summary points

An assessment of broadcastings contribution to copyright Summary 21 EU broadcasting contribution to core copyright of over 30bn Public and commercial broadcasters invest significantly more in original radio & TV IP and related copyright sectors than subscription funded counterparts Additional investment in partial and interdependent copyright industries Big five markets account for disproportionately high share of original IP generation in EU Smaller markets remain crucial for cultural diversity and it is the non-pay broadcasters driving creativity in these markets